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President Trump is aiming for blockbuster economic growth and a boom in America's manufacturing and AI industries. That might all be undercut by a dearth of workers needed to bring those investments to life.
Why it matters: White House crackdowns on legal and illegal immigration are accelerating the nation's long-running demographic challenges, which could stunt economic growth in the years ahead.
Driving the news: The latest sign that the Trump administration will make it more burdensome for corporations to rely on foreign workers came Friday.
- Corporations will have to pay a $100,000 fee to apply for H-1B visas, a pathway for skilled foreigners to join U.S. employment ranks, the president announced — up from $2,500.
- Trump also directed the Labor Department to revise pay requirements for these workers who, in some cases, are underpaid relative to U.S. workers.
What they're saying: Commerce Secretary Howard Lutnick said it won't be "economic anymore" for companies to rely on H-1B visa — incentivizing them to lean on American workers instead.
- "If you are going to train people, you're going to train Americans," Lutnick told reporters.
State of play: The change is a blow to American firms that rely on the visas to fill a job market gap: not enough skilled U.S. workers to meet employer demand. It is the latest drain on labor supply from Trump's immigration crackdown.
- Lower labor supply, for example, is a likely factor in weak job growth over the summer — only 27,000 jobs a month added from May to August.
- This is a key tension of Trumponomics: demanding companies produce more goods here, alongside policies that cut off the supply of workers companies say they need to do so.
By the numbers: The immigration slowdown is expected to make long-standing demographic issues worse.
- The Congressional Budget Office said this month it expects net immigration of only 400,000 this year — down from its estimate of 2 million in January.
- The baby boom generation is reaching retirement age, and generations that come behind them are smaller amid falling fertility rates. The CBO sees overall U.S. population growth of only 0.3% a year in the years ahead. It was 1% as recently as 2014.
What to watch: Job market weakness is coinciding with sluggish labor force growth. It is difficult to distinguish the instances in which less demand, as opposed to less supply, is hurting hiring.
- "Strict immigration controls — a tight border, increased deportations, an end to [a Biden-era parole program and temporary protected status] and a chilling effect on participation rates for foreign-born workers — have sharply slowed growth in the labor force," Morgan Stanley economists wrote in a note.
- The economists said "growth in labor supply has slowed at about the same rate as labor demand."
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After beating headline expectations, one of the largest integrated freight & logistics stocks, FedEx $FDX, had a +0.95 reaction score.
The company posted revenues of $22.20B, versus the expected $21.65B, and earnings per share of $3.83, versus the expected $3.61.
Following a mixed report, the $33B residential construction giant, Lennar $LEN, had a -2.15 reaction score.
Their report showed revenues of $8.81B, versus the expected $8.97B, and earnings per share of $2.29, versus the expected $2.10.
Now let's dive into the fundamentals and technicals |
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| FDX snapped a 4 quarter beatdown streak |
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| FedEx had a +2.7% post-earnings reaction, and here's what happened: |
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- Over the past year, revenue and operating income have increased by 3% and 7%, respectively.
- They remain on track to spin-off FedEx Freight in June 2026. We think the market will love this move. Look at what happened to General Electric after it split into three separate companies.
- In addition to the strong quarter, the management team also issued solid guidance for the next fiscal year, including $1B in cost savings from the company's restructuring.
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We wrote about this stock in a recent column of the Weekly Beat, highlighting the bearish fundamental and technical trends. This positive earnings reaction came as a big surprise to us because nothing significant has changed fundamentally.
Does the market know something we don't? Perhaps it's looking ahead to the spin-off next year?
If the price can scoop-n-score above the key level of interest we've highlighted on the chart above, the squeeze will be on, and a quick move higher would likely follow.
So long as FDX holds below 235, our bias will remain sideways to lower for the foreseeable future. A decisive close above that level would shift our bias to the upside. |
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| LEN suffered its 8th consecutive negative earnings reaction |
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| Lennar suffered a decline of -2.1% following this earnings report, and here's what happened: |
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- Homebuilding revenues declined 9% year-over-year, primarily due to a decrease in sales prices.
- The housing market this company serves is experiencing significant weakening, as evidenced by the 17.5% year-over-year decline in gross margin.
- In addition to the woeful quarter, the management team decreased its forward guidance for home deliveries.
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Despite a broad rally in the residential construction industry, this stock has remained in a firm technical and fundamental bear market. Moreover, Mr. Market has punished the shareholders with one of the longest beatdown streaks in the entire S&P 500.
Many areas of the housing market are thriving, but this company doesn't have exposure to them. They are doing everything wrong.
After a nearly 50% decline from the all-time high peak last year to the spring 2025 low, the price has stopped falling and is in a sideways consolidation. We expect this to continue until there's a catalyst for the price to breakout, which we don't anticipate will happen anytime soon.
So long as LEN is below 144, the path of least resistance is likely to remain sideways to lower for the foreseeable future. An authoritative close above that level would mark the resolution of a prolonged bearish-to-bullish reversal pattern and the beginning of a new bull market. |
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The Russell 2000 is at an all-time high and it was four years in the making. In a market dominated by tech behemoths, small caps at last taking out a high from 2021 is a sign that the rally is finally
broadening. The Federal Reserve’s easing proved the final catalyst for the small-cap universe, which is always
rate-sensitive. It quickly retreated after the record, but the index’s gain of over 36% from its trough following Liberation Day on April 2 is remarkable.
Interest-rate cuts matter more than anything else. As one of the
so-called Trump trades, small caps’ resurgence isn’t surprising, after they were briefly swept up in the fallout from the administration’s policy rollout. Still, the expectation that they can outperform due to policies that favor US businesses, such as deregulation, tax cuts, and tariffs, remains valid. And the way the Russell 2000 has regained its 2021 peak about two years after large caps surged past it, explains the optimism that it can now catch up:
The small-cap universe has barely started to gain ground on bigger stocks. The Russell 2000’s performance compared to the Russell 1000 index of larger caps is now just above its 200-day moving average for the first time since the brief Trump-Trade surge after the election; its long-term trend of underperformance compared to the mega caps of the Russell Top 50 Index continues:
What are the chances the rally endures and does it make sense for it to broaden beyond the usual tech high-flyers? Monetary policy and tariffs will continue to generate uncertainty
. Small caps’ second-quarter results provided a boost, but they need to navigate these changing dynamics.
Bank of America’s Jill Carey Hall suggests earnings revisions and manufacturing performance are factors that could support or stymie further gains. With additional rate cuts penciled in,
but not guaranteed, it makes sense to expect a sustained rally, but not a universal one. Carey argues that easing cycles tend to favor higher quality small caps (with stronger balance sheets), and the larger companies among them:
The best performing small-cap styles during cutting cycles have been Value>Growth and Quality>Risk, even when a cutting cycle didn't coincide with a recession. We've believed the low-quality rally in small caps could be in its later innings. Similarly, larger small caps (top size quintile of the Russell 2000) have outperformed microcaps (smallest quintile) 100% of the time during cutting cycles over the past 25 years.
Peter Oppenheimer of Goldman Sachs Group Inc. also stresses diversification away from the small group that has dominated in recent years. He points out that equity valuations are elevated, while stocks must contend with higher interest rates and inflation, slower world trade, sluggish economic growth, and rising demand on government spending, none of which were present during past structural bull markets.
That might imply looking beyond the US for value. MSCI’s index of European small caps is trading at a discount to the US. Unlike its American counterpart, it hasn’t seen a significant recovery in recent months:
Valuations are most extended in microcaps, which have outperformed since the second quarter. Apart from that, the broader space of small caps is trading at relatively cheaper valuations, as this BofA chart shows. This is a key reason for the current optimism:
Notwithstanding, small caps’ rate sensitivity serves as a caution. Alastair Pinder of HSBC Holdings Plc says that because half of small-cap debt is floating compared to 10% for the S&P 500, lower Fed funds are a much clearer tailwind — and vice versa. But many in the sector need many more cuts to help them:
Nearly 40% of constituents are loss-making versus 7% in the S&P 500, concentrated in profitless tech and early-stage biotech. These firms don’t just need modest easing; they need zero rates and QE to thrive – conditions we don’t see coming back soon.
In the meantime, small-cap businesses most burdened by funding costs may prove to be the biggest beneficiaries of Fed rate cuts, Bloomberg Intelligence’s Nathaniel Welnhofer notes. Here’s the breakdown of which sectors’ debt trades at the highest spreads. The higher the spread, the greater the potential benefit from lower rates:
While the surge in small caps hints that the rally in risk assets may finally be broadening, caution is still warranted. Rate cuts can ease funding pressures, but they’re still not a given. Structural challenges, thin margins, policy sensitivity, and heavy reliance on domestic demand persist. Whether these headwinds prevail will determine if the rally has staying power.
- The sectors you want to see leading are leading.
- We're seeing it all over the world.
- It's dangerous to fight the primary trend.
The iShares MSCI USA Momentum Factor ETF (MTUM) is up 25% this year. It was up 33% in 2024.
Money flows to where it's treated best.
That's the point.
While many investors are out there wasting their time trying to be smarter than the market, obsessed with their "fundamentals," We're much more focused on the flow of money.
Remember, the only way anyone gets paid around here is to sell things at higher prices than where we buy them.
The underlying companies and their businesses are just a distraction, in my experience.
USA Momentum Hits New All-Time Highs
Here's MTUM breaking out this summer to new all-time highs:
When this index is doing well, how bad could things be for the overall health of the stock market?
You're looking at a 30% weighting in U.S. Technology stocks, 17% Financials, and 12% Industrials.
These are the sectors you want to see leading during a bull market. And these are the sectors that have been driving the U.S. stock market to new all-time highs.
Small-Cap Momentum Hits New All-Time Highs
We've been talking about small-caps hitting new all-time highs since last week. We expected money to rotate into this group, but it's happening more aggressively than I thought.
That's a good thing.
Look at the Invesco S&P SmallCap Momentum ETF (XSMO) closing at new all-time highs last week:
Like its large-cap counterparts, this index is also being driven by exposure to offensive sectors - 20% Financials, 17% Industrials, 15% Consumer Discretionary, and 13% Technology.
It's not the economy. It's not your president. It's not the fun-for-mentals.
There is more demand for these stocks than there is supply of them. If you've ever taken an economics class, you know these forces drive prices higher.
It's just math.
And it's not just American math. You're seeing stocks with high momentum breaking out around the world as well.
Here is the iShares MSCI International Momentum ETF (IMTM) hitting new all-time highs this week - driven by large exposure to Financials and Industrials:
The countries driving this index to its highest levels in history include Germany (16%), Japan (14%), the UK (13%), Canada (13%), Switzerland (7%), France 6%), Australia (6%), and some more Europe after that to finish up the list.
These are the most important countries in the world - and they are driving this index higher.
When someone tells you it's only seven stocks driving the market, you have my permission to smack them over the head. Tell them I sent you.
The last thing I want to mention is that this has nothing to do with "trading."
We all know that angry curmudgeon who thinks the market needs to care about what they have to say. And they get very upset when the market laughs off their theories.
We've all seen them. It makes them sad when the market keeps going up in price while they keep warning you it's not going to end well.
(lol... "not going to end well." The worst of offenders love using that one.)
This is more about investing and more about a happy lifestyle than it is about "trading."
This is not about "short-term swings." This is about identifying primary trends and riding them.
Just because what you think is important is not what the market thinks is important doesn't mean the market is wrong. It just means you're doing it wrong.
Price is what pays. In the short-term, maybe. But most definitely over the long-term. Trends persist.
The longer your time horizon, the more important these primary trends become.
And the more dangerous they are to fight.
Gold & Silver moving nicely.
Soybeans, on a glut of supply going down.
Crude oil....bottom in?
jog on
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